ABSTRACT: One of the most distinctive characteristics of the U.S. telephone system is that it eschewed the government-owned PTT model in favor of one in which the telephone system is privately owned. According to the conventional wisdom, private ownership permitted AT&T President Theodore Vail to stifle the emergence competition in local telephone service by acquiring rival services, notwithstanding the half-hearted attempts by the federal government to use the antitrust laws to prevent him from doing so reflected in the Kingsbury Commitment.

What is not widely known is how close the U.S. came to falling in line with the rest of the world. For the one-year period following July 31, 1918, the federal government took over the U.S. telephone system, using the exigency of World War I to accede to the Postmaster General’s desire to assert control over it. The episode sheds new light on the role of scale economies and network economic effects that were understood far earlier than generally believed. Even more importantly, the history reveals that the Kingsbury Commitment was more effective in deterring monopoly than generally believed and that the primary force driving the re-monopolization of the telephone system was the Postmaster General, not Theodore Vail. It also reveals that, contrary to the claims of subsequent commentators, universal service implemented through cross subsidies did play a key role in telecommunications as early as 1918. The most remarkable question is, having once obtained control over the telephone system, why the federal government ever let it go. The dynamics surrounding this decision reveals the inherent limits of relying on war to justify extraordinary actions. More importantly, it shows the difficulties that governments face in overseeing industries that are undergoing dynamic technological change and that require significant investments of risk capital.

ABSTRACT: Consumers regularly suffer harm in the form of higher prices, lower output, reduced quality and limited innovation as a result of antitrust infringements but they are rarely compensated due to legal and practical obstacles. Collective redress is a mechanism that may accomplish the termination or prevention of unlawful business practices which affect a multitude of claimants or the compensation for the harm caused by such illegal practices. This study analyses the systems of collective redress for breach of competition law in the area of antitrust in the EU. Starting with an overview of the relevant national and EU legislation in this area, it discusses the question of an EU-wide specific system for collective redress in antitrust and the legal basis for a legislative initiative at EU level. Finally, it assesses advantages and limits of different policy options in relation to several procedural rules both generally applying to collective actions and specifically relevant to collective redress in antitrust.

ABSTRACT: This article explores the interface between classic government structures -- the courts -- and key governance tools -- soft law. It presents the quantitative and qualitative results of research that asks the questions of whether and how soft law is reflected in the European competition and state aid case law. It suggests that soft law is taken seriously by the Court of Justice of the European Union, and figures more and more in the judgments, orders and opinions issued in these areas. The case law recognises legal effects for soft law instruments through the mediation of general principles of law. The article argues that, through the mechanisms of the judicialisation process, the European Courts have rubber-stamped hybrid modes of regulating competition and state aid and have embedded soft law within the constitutional legal framework of the Union, while at the same time endowing traditional legal values with new functions in a “new governance” context.

ABSTRACT: Since 1978, I have been arguing that one should never use market-oriented approaches to determine the legality of business conduct under either the Sherman Act’s specific-anticompetitive-intent test of illegality or the Clayton Act’s lessening-competition test of illegality. Somewhat more concretely, for over 30 years, I have been arguing that one should never apply these tests of illegality by defining relevant markets and basing the predictions or post-dictions the applicable test of illegality makes legally salient even in part on estimates of market-aggregated parameters — e.g., on estimates of the defendant’s market share or defendants’ market shares and the total market share of the leading four or eight firms in the relevant market (parameters on which the U.S. antitrust-enforcement authorities traditionally focused) or on estimates of the post-conduct HHI(s) of the defined relevant market(s) and the conduct-generated change in the HHI(s) in question (parameters on which the Department of Justice and FTC have focused more recently).

My argument for this conclusion has two components. The first is a demonstration that — regardless of whether the markets that any recommended market-oriented approach is supposed to define are ideal-type (classical) markets (whose definition is supposed to satisfy widely-shared professional assumptions about the competitiveness of products placed within a given market and the difference between the competitiveness of products placed respectively in the same market and in different markets) or functional (antitrust) markets (which are supposed to be defined so as to render the antitrust-legality-analysis decision-protocol that makes use of them “optimal” or “maximally cost-effective”) — market definitions are inherently arbitrary, not just at their periphery but more comprehensively. The second is a demonstration that — even if, contrary to my view, one could define markets non-arbitrarily — antitrust-legality-analysis decision-protocols that use such market definitions cannot be cost-effective because data on the non-market-aggregated parameters that are used to define the markets in question have more legally-relevant predictive power than data on any market-aggregated parameters that one could define could have.

In 2010, Professor Louis Kaplow published an article Why Ever Define Markets? that argues for the proposition that one should never define markets for the purpose of measuring a firm’s economic power, which is a corollary of the conclusion that I established in 1978. Kaplow’s article includes a lengthy footnote that — after stating that my 1978 article constitutes a “particularly harsh attack on market definition” — denigrates it on a number of accounts. The article I am posting (1) delineates slightly-improved versions of my 1978 arguments against the use of market-oriented approaches to analyzing the legality of business practices under U.S. antitrust law, (2) explains why those arguments and the “idiosyncratic” (Kaplow’s accurate if pejorative characterization) conceptual systems and competition theories they employ imply that Kaplow’s more limited conclusion is correct, (3) delineates and criticizes Kaplow’s “arguments” for his conclusion (the most relevant of which is a correct assertion of a proposition that is an analog to the conclusion of my second argument for the claim my 1978 article establishes — an assertion he does not and cannot justify because he does not develop and use any counterpart to my idiosyncratic conceptual systems and theories, which play a critical role in the justificatory argument), (4) demonstrates that all of Kaplow’s criticisms of my 1978 article are either incorrect or unjustified, and (5) asserts that at least some of the errors Kaplow makes when criticizing my article are important because they are made by others as well and militate against the correct analysis of the legality of various types of business conduct under U.S. antitrust law.

ABSTRACT: Shortly after the U.S. Department of Justice ("DOJ") filed its claim in the eBooks case earlier this year, Canadian class action plaintiffs followed suit by commencing their own proceedings in the provinces of British Columbia, Ontario, and Quebec. As in the United States, the Canadian actions are challenging the agency eBook distribution model adopted by Apple and five of the world's largest book publishers. Specifically, the Canadian plaintiffs allege that Apple and the defendant publishers violated Canada's price-fixing offense under section 45 of the Competition Act (the "Act"). The publishers allegedly committed the offense by collectively agreeing to discontinue their former wholesale distribution models, under which publishers sold eBooks at wholesale prices to distributors who in turn set retail prices, for a new agency model under which publishers set prices with distributors receiving sales commissions.

The Canadian plaintiffs also allege that the publisher defendants illegally agreed not to set eBook prices below Apple's iBookstore prices (a "most-favored-nation" provision). Finally, the plaintiffs plead a variety of non-statutory grounds for recovery, including certain common law torts (e.g., unlawful interference with economic relations) and-in Québec-claims under the Civil Code of Québec. As in the United States, the key substantive issue in Canada will be whether the conduct of Apple and the defendant publishers constitutes an illegal conspiracy. In addition, the case raises some uniquely Canadian issues relating to jurisdiction and certification and the interpretation of Canada's conspiracy offense. Before addressing these various questions, we provide a brief summary of the competition class action regime in Canada for background purposes.

In Today's NY Times, Casey Mulligan (Chicago - Economics) asks What Happened to the Microsoft Monopoly? He begins his article by stating "As Apple introduces a range of new products, it is worth remembering that there is no such thing as a monopoly in the computer industry." For some antitrust practitioners, these are fighting words. For others, this is exactly what they noted both then and today.

ABSTRACT: Antitrust enforcement efforts both in Europe and the United States have recently increased in number of actions taken and the amount of fines imposed in high-tech industries. Recent decisions in this field have rekindled in-depth and largely unresolved debates concerning the appropriate role of antitrust enforcement in such markets. As it happened with Microsoft and Intel, and it’s expected to happen soon against closely related companies – in terms of business model- such as Google, enforcement efforts in both sides of the Atlantic raise the same fundamental issues concerning the effectiveness of competition policy in dynamically competitive industries. The debate is the same, although, as we shall see, the results are totally different outcomes. This sort of high tech markets are usually characterised for a heavy reliance in ICT (information and communication technologies), the importance of product design and the development of platforms. Question is, does current antitrust enforcement in these specific markets achieve its goal of fostering competition or rather the undesired effect of chilling innovation?

ABSTRACT: We study mergers incentives in a duopoly with differentiated products and noisy observations of firms' actions. Firms select dynamically optimal actions that are not static best responses and merger incentives arise endogenously when firms sufficiently deviate from their collusive actions. Depending on the merger costs, there are three merger equilibria: if the cost is low, firms merge immediately, if it is high, they never merge, and, in an intermediate cost range, there are endogenous mergers for which we derive a number of results. First, we characterize the firms’ shares in the merged firm as a function of firm and product market characteristics. Second, the hazard rate for a merger decreases — so that the probability of a merger over any fixed time span decreases — as the fixed cost of merging decreases. This is because the more valuable merger option increases the stability of pre-merger collusion, causing it to persist, and hence the dearth of mergers need not mean more product market competition. Third, the acquiring firm's pre-merger returns are first positive and then become negative just before the merger occurs, while the target firm's returns follow the opposite pattern. Fourth, there are no announcement returns.

ABSTRACT: According to the Review of Telecommunication Policy and Regulation in Mexico published by the OECD in January 2012, the performance of the Mexican telecommunications industry in terms of prices and penetration has been poor in comparison with other OECD countries. This would have led to a welfare loss to the Mexican economy of 129.2 billion dollars over the 2005-2009 period; ie. 1.8% of national GDP. The poor performance is attributed to a lack of competition in Mexican telecommunication markets. These findings are supported by an econometric study establishing a causal link between the degree of competition and the performance indicators.

In this article I criticize the findings of the OECD arguing that in comparison with OECD averages Mexican prices have not been high, that penetration ratios are reasonably acceptable given Mexico's stage of economic development, that they are steadily catching up with OECD standards and, finally, that the econometric study fails to establish a causal link between the degree of competition and performance. Particularly, I show that there is no theoretical justification for comparing prices in purchasing power parity dollars, as the OECD does. Moreover, I indicate a number of elementary errors in the econometric study inflating the welfare loss beyond any proportions.

ABSTRACT: Policymakers at the Department of Justice’s Antitrust Division have recently focused on a wide variety of these “contracts that reference rivals” (CRRs) as a source of potential antitrust concern, at least when deployed by firms with market power.1 The policymakers recognize that various efficiency justifications exist for the many different types of contracts in issue. Because, however, all types of CRRs affect, in some respect, the contract terms that may be available to the contracting party’s rivals, these agreements may each, in theory, both diminish the ability of rivals to compete and provide a vehicle for firms to learn their rivals’ terms of sale. In some instances, these effects may create or enhance market power or otherwise lead to consumer harm. This is the concern that appears to have informed recent DOJ enforcement actions against “most-favored nations” (MFN) clauses (which require one party to guarantee the other that it is receiving contractual terms as good or better than any arrangement made by its rivals2 and “non-discrimination” rules or clauses (NDR) (which require a party to guarantee that it will not disfavor the contracting party’s products relative to those of its competitors).3 There seems to be an insufficient appreciation, however, of the important differences between the various varieties of CRRs, and the fact that these differences may contribute to both the competitive effects and the justifications for the provisions’ use. These differences should therefore be taken into account in deciding whether or not CRRs violate the antitrust laws.

ABSTRACT: The evolution and operation of the so-called ‘failing firm defence’ in EU merger control is described. The high evidential hurdle in establishing a failing firm defence is discussed. The scope for arguments based on the counterfactual principle, even if the specified criteria for a failing firm defence are not strictly satisfied, is considered.

ABSTRACT: In the Bayer and Pfizer decisions of the Italian Antitrust Authority (IAA), the application of the legal standard to find an abuse seemed to be tougher than the standards applicable at the EU level. The IAA's theory on misuse of regulatory procedures seems to imply that reliance on legitimate patent instruments or proprietary information can constitute an abuse in itself. The IAA's essential facility doctrine seems to ignore the ‘new product’ requirement under settled EU case law. While in the majority of its earlier decisions on abuse of dominance, the IAA had accepted commitments proposed by the concerned companies, in the Bayer and Pfizer decisions the IAA found an infringement and imposed sanctions; it remains to be seen whether this new course will continue under the new Chairman of the IAA.

The AAI submitted a written statement to the Senate Judiciary Committe Subcommittee on Antitrust, Competition Policy and Consumer Rights for the hearing on Universal Music Group's proposed acquisition of EMI's recorded music division. See here.

One of the signal achievements of the Chicago school in antitrust was to convince the courts to discard social and political goal, and view competition policy solely through an economic lens. Robert Pitofsky’s 1979 article defending the political context of antitrust was, in retrospect, the end of an era.

Zingales wants to prevent crony capitalism, the scourge of his Italian homeland, from taking root in the U.S. According to his new book, the American Revolution was “a battle for economic freedom against crony capitalism.” Zignales is pro-market, not pro-business. And he is pro-competition, calling it “the magic ingredient that makes capitalism work for everyone.”

Zingales favors antitrust to protect competition. Looking solely to economics, his endorsement for competition policy is measured. Preventing excessive consolidation ensures that consumers receive the benefits of innovation, he writes, but he is wary that antitrust enforcement will squelch some scale economies and that it may facilitate government intrusion into the private sector, which could be exploited for political reasons. Still, Zingales criticizes Alan Greenspan’s extreme non-interventionist position on antitrust, on the ground that it cannot be rationalized with the many instances of collusion, such as the lysine cartel, that have been uncovered.

But Zingales’ tone changes when he turns to political goals. “[T]he most powerful argument in favor of antitrust law,” he writes, “is one that is rarely made: antitrust law reduces the political power of firms.” After all, “[t]he bigger the firm…, the more likely it will be able to wield the power of the state to its own advantage.” But antitrust analysis “ignores the enhanced political power a merger can confer.” If antitrust analysis took this into account, “many mergers considered welfare-enhancing today would appear to be welfare-reducing instead.” He even floats the “radical” idea that “mergers that lead to excessively powerful political entities could be subject to imitations on the amount of lobbying they engage in.” Perhaps it took the financial crisis and Great Recession to convince a free-market Chicago economist to endorse antitrust primarily on a political argument. What would Bob Pitofsky make of that? We may find out on Thursday, when Pitofsky revisits his 1979 article at the annual conference of the American Antitrust Institute.

ABSTRACT: Following the onset of the financial crisis in 2007, the European Commission adopted a series of measures aimed at ensuring that State aid to the banking sector was structured in a coordinated manner so as to ensure recovery in the financial markets. The Commission published a Working Paper in October 2011, setting out the effects of those measures, and this is reviewed in this article. Whereas DG Comp was faced with a difficult and complex task, it generally handled the matter of bank restructuring satisfactorily from a State aid perspective. Significant questions remain as to the efficacy of some of the other measures adopted and their interaction with broader issues of banking regulation, the single market, and fiscal union.

ABSTRACT: The U.S. Department of Justice, Antitrust Division ("Division"), has filed a high profile case against Apple and several large book publishers ("Complaint"). The case alleges that the defendants agreed to change the way eBooks were sold. Traditionally, publishers followed the wholesale model, selling books outright-both "e" and traditional-to booksellers who then set retail prices. The challenged agreement allegedly required the publishers to switch to an agency model for eBooks. Pursuant to this model, each publisher would set the resale price and pay a 30 percent commission to the retailer.

Although the Division contends that the per se rule applies, it hedges its bets. Much of the complaint reads as if the government were alleging a rule-of-reason case, articulating actual anticompetitive effects in an eBook relevant product market of which the publisher defendants possess a large share. Whether viewed as a per se or rule-of-reason case, the Complaint convincingly tells the story of traditional publishers' scheming to increase consumer prices and restrain competition from upstart eBook publishers. That three publisher defendants immediately entered consent decrees confirms the case's strength.

Yet, a sophisticated, doctrinally focused antitrust lawyer would have no trouble attacking (1) the applicability of the per se rule and (2) the eBook product market. The alleged agreement does not, on its face, appear to almost always harm consumer interests, as per se illegal agreements must. An agency distribution scheme could, for example, pro-competitively facilitate an industry introducing a new product into an established market. With respect to defining the market, many consumers readily substitute traditional books for eBooks, and the Division's anticompetitive story is motivated by eBooks' competitive impact on ordinary book sales. From a doctrinal perspective, the alleged eBook-only market thus seems too narrow.

That these points are debatable should not suggest that the government's case is weak. But the litigating defendants will spill plenty of ink nonetheless. Already, Apple's answer denies the existence of an eBook product market and attacks the complaint for ignoring that the agency model enabled robust competition by breaking up Amazon's dominant position. Could skillful lawyering bamboozle a judge with limited antitrust chops? Perhaps the time has come to ask whether the per se rule and traditional market definition doctrine have become more trouble than they are worth.

Part I reviews the allegations in the complaint with respect to per se liability and market definition. Part II shows how a relentlessly doctrinal approach to criticizing the Division's per se and relevant market allegations could distort the antitrust analysis. Part III explains that these criticisms do not undermine the case in any meaningful sense-they simply create the opportunity for distracting doctrinal posturing. This Part then raises the question: If traditional doctrine has lost its ability to simplify antitrust cases, do these hoary tools serve any useful purpose?

ABSTRACT: European competition law applicable to distribution agreements seems to have entered into a new stage of debates and conflicts which undoubtedly announce deep evolutions. Internet distribution has not found its balance yet and the Pierre Fabre case, in all likelihood, merely constitutes a step towards the construction of a truly efficient law. The conflicts between European competition law and national laws on restrictive practices have once again become a hot topic, and it is desirable that the supremacy of European law prevails. Finally, the acceptance of the economic analysis of vertical restrictions often remains difficult.

ABSTRACT: This study investigates the relationship of mergers & acquisitions with the interest spread of the banking industry in Pakistan. To assess whether the merger of Pakistani banks were a success or otherwise, profitability, liquidity ratios, and net interest spread are computed which are considered essential to judge the financial performance of any bank. Data is taken for the period of 1997-2010 and this data have been used to calculate the interest spread and market concentration. Market Concentration is calculated by using Herfindahl-Hirschman Index or HHI. Findings show that the profitability and net interest spread of two merged banks declines as a result of mergers. It is also revealed that Concentration of the banking industry shows a rising trend during 2008 and 2009 after mergers occurred during 2007 as a result of merger. However, it shows the level that almost approaches the threshold i.e. 1000. One or two mo! re mergers can push up threshold level of HH index. It means that it is the right time for banking industry of Pakistan to be reviewed by any antitrust authority to maintain the optimum level of competition.

Designed for the seasoned antitrust practitioner with four to ten years of experience, this program provides far more than a typical CLE conference. The mornings will feature a series of interactive sessions taught by a distinguished quartet of antitrust professors -- Andrew I. Gavil, William E. Kovacic & Steven C. Salop -- who will illuminate the trends and tensions in current antitrust doctrine. In the afternoons, attendees will choose from a menu of breakout sessions in which seasoned practitioners and government enforcers will provide cutting edge insight and practical pointers on topics such as merger clearance, cartel practice, unilateral conduct, class action litigation, antitrust economics, distribution issues, and non-U.S. competition law.

Lunches and dinners across the three-day event will feature senior government enforcers and legendary practitioners who will round out the training by discussing current agency thinking, as well as competition policy and its applications. This setting affords attendees the opportunity to network with these experts in a hospitable environment, as well as get to know their colleagues in the antitrust bar.